38446 Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices

4 15 U.S.C. 78s(b)(2).

5 17 CFR 200.30–3(a)(12).

in order to eliminate warrant fail

obligations. Since warrants have been

eligible at EMCC, EMCC’s records also

indicate that there is high fail rate with

respect to warrant obligations. In order

to eliminate there fails, members have

requested that EMCC implement a

similar process. The proposed rule

change would allow EMCC to perform a

bilateral pair-off process for warrant

obligations.

In order to be eligible to be paired-off,

the obligations must be within the same

ISIN, and the fail deliver obligations and

fail receive obligations must have a

contract value of $0. In addition, fail

deliver and fail receive obligations will

be paired-off only if the quantity of

warrants with respect to one or more fail

receive obligations (either singly or in

the aggregate) is equal to the quantity of

warrants with respect to one or more fail

deliver obligations (either singly or in

the aggregate).

Using the process described above,

EMCC will determine which fail deliver

and fail receive obligations are to be

paired-off and will issue a report to each

member identifying such paired-off

obligations. EMCC will also instruct the

member’s qualified securities depository

to cancel the previously issued debit

and credit instructions relating to such

paired-off obligations. At the time the

report is distributed to members, their

rights or obligations with respect to the

paired-off fail deliver and fail receive

obligations, under the Rules are

extinguished.

Although EMCC becomes the

counterparty to all transactions

submitted to it, upon receipt of

securities by EMCC they are redelivered

from EMCC to the original counterparty

to the underlying transaction. It is

possible that the pair-off process will

result in the canceling of the fail

obligation of only one of the original

counterparties, leaving the

corresponding fail obligation open at

EMCC. Under these circumstances,

EMCC will allocate any warrants

received by giving priority first to the

oldest fail receive obligation and next to

the fail receive obligation relating to the

largest number of warrants. EMCC will

not allocate any warrants which would

not fully satisfy a fail receive obligation.

For example, if EMCC receives 10

warrants from a member with a fail

deliver obligation (where the

corresponding fail receive obligation

had been canceled) and there are 3 fail

receive obligations of the same age, one

of which is for 7 warrants, one of which

is for 6 warrants, and one of which is

for 5 warrants, EMCC will deliver 7 of

the 10 warrants received to satisfy the

fail receive obligation for 7 warrants and

will not deliver the remaining 3

warrants until it has received a

sufficient quantity of warrants which

will allow it to fully satisfy at least one

fail receive obligation.

EMCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because it will facilitate the

prompt and accurate clearance and

settlement of securities transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

EMCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments relating to the

proposed rule change have been

solicited or received. EMCC will notify

the Commission of any written

comments received by EMCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act

requires that the rules of a clearing

agency be designed to facilitate the

prompt and accurate clearance and

settlement of securities transactions for

which it is responsible. The

Commission believes that the rule

change should provide EMCC with a

process that should reduce the number

of outstanding fail receive obligations

and fail deliver obligations relating to

warrants. The failure of one party to

satisfy their settlement obligations

threatens the entire clearance and

settlement system because that party’s

failure may in turn cause other parties

to fail to meet their obligations.

Therefore, by reducing the number of

outstanding fails at EMCC, the proposed

rule change should facilitate the prompt

and accurate clearance and settlement of

securities transactions.

EMCC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of notice because

accelerated approval will enable EMCC

to begin reducing the number of fail

obligations relating to warrants

immediately.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of EMCC. All submissions should

refer to File No. SR–EMCC–98–5 and

should be submitted by August 6, 1998.

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,4 that the

proposed rule change (File No. SR–

EMCC–98–5) be and hereby is approved

on an accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18964 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40185; File No. SR–NSCC–

97–13]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Changes in Membership Standards

July 9, 1998.

On October 30, 1997, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

and on December 31, 1998, amended a

proposed rule change (File No. SR–

NSCC–97–13) pursuant to Section

19(b)(1) of the Securities Exchange Act
Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices 38447

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 39693

(February 23, 1998), 63 FR 10058.

3Letter from William C. Alsover, President,

Centennial Securities Company, to David F. Hoyt,

NSCC (November 7, 1997).

4Rule 15 of NSCC’s Rules and Procedures.

5NSCC has taken note of the findings set forth in

the April 15, 1997, memorandum entitled, ‘‘The

Joint Regulatory Sales Practice Sweep; Heightened

Supervisory Procedures,’’ which was the product of

an initiative involving the National Association of

Securities Dealers, Inc., the New York Stock

Exchange, Inc., the Securities and Exchange

Commission, and the North American Securities

Administrators Association, Inc.

6 15 U.S.C. 78q–1(b)(3)(F).

7 15 U.S.C. 78q–1(b)(3)(H). 8 17 CFR 200.30–3(a)(12)..

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on February 27, 1998.2 One comment

letter was received.3 For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

Currently, NSCC’s rules provide that

it will establish, as deemed necessary or

appropriate, standards of financial

responsibility, operational capability,

experience, and competence for

membership, as well as guidelines for

the application of membership

standards. 4 The purpose of the rule

change is to establish specific standards

under which NSCC may deny an

applicant membership or to cease to act

for a participant.5

The revised rule will allow NSCC to

deny membership to any applicant or to

cease to act for any participant if a

person who has either significant

managerial responsibility or significant

ability to influence the policies and

actions of the applicant or participant

(through ownership interest, contract, or

otherwise), whether or not the person

currently acts as a principal or

registered representative, has a record

that reflects any adverse history as

enumerated in the rule. The types of

adverse history enumerated in the rule

include felony and misdemeanor

proceedings and convictions; certain

disciplinary, regulatory, or

administrative proceedings and actions;

arbitration or civil actions; multiple

customer complaints; termination or

permitted resignation after investigation

or allegation of sales practice problems,

violation of rules, regulation, laws, or

standards of conduct; or being subject to

heightened supervision.

Any action, complaint, or proceeding

referred to in the rule that is not taken

against a person will nonetheless be

deemed to be taken against that person

if his or her activities are cited in whole

or in part as being a contributing cause.

However, no person will be deemed to

have an adverse regulatory history due

to being named in customer complaints

or adverse civil proceedings merely

because of the persons’s management or

ownership position in the applicant or

participant unless the number of

complaints or proceedings are

disproportionate to the size of the firm.

The rule change will also allow NSCC

to deny membership to an applicant or

to cease to act for a participant if a

correspondent of the applicant or

participant or any entity for which the

applicant or participant is financially

responsible would fail to meet the above

membership standards. However this

provision of the rule will apply only if

the size of the business of the

correspondent or other entity is

significant relative to the capital of the

applicant or participant. NSCC has

informed the Commission that it intends

to construe the new rule in a manner

which will not limit its authority under

its rules to deny membership to, to

cease to act for, or to obtain further

assurances from any applicant or

participant when the circumstances

warrant even if the circumstances

include or consist solely of items that

are not specific grounds for such action

under the rule change.

II. Comment Letters

The Commission received one

comment letter in response to the

proposed rule change (supra note 3).

The commenter supported the rule

change but believed an applicant or

participant should be able to appeal a

decision to deny membership.

III. Discussion

Section 17A(b)(3)(F) of the Act 6

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds in

the custody or control of the clearing

agency or for which it is responsible.

The Commission believes that the

proposed rule change is consistent with

NSCC’s obligations under Section

17A(b)(3)(F) because it should enable

NSCC to better manage its risk exposure

by specifically authorizing NSCC to

consider applicant’s and participants’

regulatory history. An adverse

regulatory history can indicate that an

applicant would or a participant does

present an unacceptably high risk to

NSCC and its participants.

Section 17A(b)(3)(H) of the Act 7 also

requires that the rules of the clearing

agency provide a fair procedure with

respect to the denial of participation

and the prohibition or limitation by the

clearing agency of any person with

respect to access to services offered by

the clearing agency. The Commission

believes that the proposed rule change

is consistent with NSCC’s obligations

under Section 17A(b)(3)(H) because it

defines the specific bases upon which

NSCC may deny membership or cease to

act for a participant.

In response to the issue of whether an

applicant can appeal a denial of its

membership application, the

Commission notes that Rule 2 of NSCC’s

Rules and Procedures currently

provides a hearing process for any

applicant that is deemed to not meet

membership requirements before the

applicant is denied membership.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

NSCC–97–13) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18907 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Small Business Investment Company

of Connecticut (License #02–0052),

Notice of License Surrender

Notice is hereby given that the Small

Business Investment Company of

Connecticut (SBIC/CT), Bridgeport,

Connecticut, has surrendered its license

to operate as a small business

investment company under the Small

Business Investment Act of 1958, as

amended (‘‘the Act’’). SBIC/CT was

licensed by the Small Business

Administration on January 31, 1961.

Under the authority vested by the Act

and pursuant to the regulations

promulgated thereunder, the surrender

of the license was accepted on June 29,

1998, and accordingly, all rights,

privileges, and franchises derived

therefrom have been terminated.

(Catalog of Federal Domestic Assistance

Program No. 59.011, Small Business

Investment Companies)